When Cheaper Isn't Better
Governments are beginning to look at energy and other life-cycle costs in their purchasing. It's about more than saving money.
In 2010, the Florida Department of Law Enforcement needed a new air-conditioning chiller unit for its headquarters building in Tallahassee. The model the state's Department of Management Services chose cost $450,0000--$60,000 more than the cheapest option. But the agency had a good reason for paying more.
The model it selected is anticipated to save $658,000 in total cost of ownership (taking into account factors including not only initial cost but also energy and maintenance expenses as well as the unit's scrap or resale value) over its expected 25-year lifespan compared to the cheapest version. Reduced energy costs alone in the chiller unit's first year of operation were expected to save $40,000 over the cheaper but less efficient model. The bottom line is that even if the cheaper unit had been offered by the manufacturer for free, the chiller the state ended up buying would still have cost the taxpayers less in the long run.
What Florida officials are practicing, the result of a 2008 state law, is life-cycle cost analysis (LCCA), an approach to purchasing that's been gaining favor among governments at every level. In fact, it's been the standard for the federal government since 2000, when President Bill Clinton signed an executive order mandating its use in federal procurement.
Nonetheless, there are formidable barriers to widespread adoption of LCCA throughout government. Perhaps foremost is the requirement to award a contract to the lowest bidder that remains part of so many government procurement laws and regulations. And a barrier that shouldn't be underestimated is a lack of motivation to use LCCA when its financial gains will accrue long after the current procurement official is gone.
There are other impediments as well. A recent International Institute for Sustainable Development report, for example, highlights non-budgetary issues ranging from "research gaps" in the application of LCCA to "lack of competence" in conducting life-cycle analysis and "lack of tools and data to do it properly."
Florida's adoption of LCCA is based on supportive procurement rules that are drawn from a broader policy view embracing good stewardship of energy, finances and the environment. Darren Francher, the Department of Management Services' bureau chief for operations and maintenance, thinks the Florida legislature was wise in addressing both new and existing buildings in the 2008 law. "A truly comprehensive energy strategy must address both aspects," says, adding, "Our experience in evaluating life-cycle costs demonstrates that sustainability and cost-effectiveness are not mutually exclusive outcomes."
Clearly Florida gets the message. Far too few states and localities are basing their procurements on this standard, and their buildings in aggregate represent a larger building stock than the federal government's. Savings in the range of hundreds of thousands of dollars per project add up in a big way, and they make a business case for helping the environment.
In terms of sustainability, wasting energy and wasting money come down to the same thing. And there's no good reason to do either.